The challenges Super Micro Computer Inc. (SMCI) and the stock now confront are serious. But these must be weighed against Super Micro’s high growth and much lower current price-to-earnings valuation, advises Carl Delfeld, editor of Cabot Explorer.
First, a research firm with a short position in the stock issued a report alleging troubles at the company. Second, Super Micro delayed the filing of its 10-K annual report. But it now has a new auditor in place and should file soon.
More recently, the Wall Street Journal reported that the Justice Department had launched a probe into Super Micro. All of this has led to shares pulling back rather sharply.
Our recommendation is not without risk. But Super Micro’s strong market position in the AI server sector, and most importantly, its much lower stock valuation, give me confidence that the stock’s upside is much larger than the downside price risk.
Keep in mind that Super Micro has been around for more than three decades, selling workstations, servers, and other equipment. But it vaulted into the spotlight along with the Artificial Intelligence (AI) boom.
Companies building AI platforms turn to Super Micro for their data center needs, leading to a growth rate over the past 12 months that is five times faster than the industry average. Super Micro's technology and its ability to tailor a particular product to a customer's need helped the company deliver quarterly revenue in 2024 that was more than a full year of revenue as recently as 2021.
All this needs to be balanced against recent lower margins and other problems at Super Micro. Super Micro has responded to the report, saying claims were "false or inaccurate" and pledging to further address it in "due course."
Back to the positive: Super Micro recently announced that it had entered into a strategic partnership with Japanese company Fujitsu Limited. The companies will develop and market a platform designed for high-performance and energy efficiency, and targeted for release in 2027. The average Wall Street estimate still calls for a high-double-digit increase in the coming 12 months.
